UPDATE 1-Mexico to offer first-ever shale blocks in Sept auction

MEXICO CITY, March 1 (Reuters) - Mexico will auction development rights to shale blocks in September, marking the first time the country has offered private oil companies the chance to develop the resource, which has been booming in the United States for years.

The National Hydrocarbons Commission (CNH), Mexico’s oil regulator, on Thursday launched a call for bids for its first shale tender including nine contractual areas that will be awarded on Sept. 5.

The blocks are in Mexico’s Burgos Basin, in the northwestern border state of Tamaulipas, where state-owned oil company Pemex has drilled some 20 exploratory wells in the past.

CNH President Juan Carlos Zepeda said companies that win development rights will be able to tap conventional oil and gas deposits as well as shale formations that may lie above or below.

“The auction’s winners will have the right to explore and carry out activities at any depth, throughout the column, involving shale formations as well as conventional sand formations,” said Zepeda.

The nine blocks contain an estimated 1.16 billion barrels of oil equivalent (boe), plus another 53 million boe of conventional oil and gas resources, according to energy ministry data. The blocks are believed to mostly contain natural gas.

Shale production will also carry a set of challenges. Mexico is racked by gangland violence in states where the shale lies, and it also lacks infrastructure from pipelines to weight-bearing roads sufficient to handle intensive shale projects.

Additionally, the hydraulic fracturing used by the industry to break up shale deposits and get oil and gas to flow out also requires large amounts of water that arid northern Mexico lacks.

60 BILLION BARRELS

Mexico’s total prospective shale resources have been estimated at some 60 billion barrels of oil equivalent.

The shale potential is even larger than the country’s deepwater resources in its territorial waters in the Gulf, where Royal Dutch Shell is set to be the biggest producer in the years ahead after winning the most blocks at a January auction.

The September auction will be the fourth for 2018, the final year of President Enrique Pena Nieto’s six-year term. Shallow water blocks will be on offer later this month and then conventional onshore areas in July.

Since a landmark energy reform was enacted in 2013-2014, Mexico has conducted eight oil and gas auctions, awarding some 90 contracts covering onshore and offshore acreage, according the CNH, which conducts the auctions and supervises the contracts.

If successful, the approximately 90 contracts could be worth more than $150 billion over their lifetime, according to energy ministry estimates.

The energy reform ended Pemex’s nearly 80 years of monopoly control over the sector and paved the way for the auctions, ending a long-standing constitutional prohibition on private companies operating fields on their own.

Despite a decade-long shale boom in the United States, including lucrative plays near the U.S.-Mexico border like the Eagle Ford Formation, similar petroleum-rich geology that almost certainly extends into northern Mexico has yet to take off.

Eagle Ford has been heavily drilled and produces around 1.6 million barrels per day (bpd) of a total of 6.5 million bpd in output from the seven largest U.S. shale regions, U.S. government data shows.

Interested companies might include Mexico’s Newpek, a unit of conglomerate Alfa, which has developed shale projects in Texas, and U.S. independent Lewis Energy, which has operated on both sides of the border.

Alfa executives said on a February conference call that the company was in a good position to participate in Mexican energy projects, without specifying which ones. (Additional reporting by David Alire Garcia and Christine Murray; Writing by David Alire Garcia; Editing by Steve Orlofsky)